Ethanol leading to a corn-based bubble

A corn-based bubble is building on the horizon, with expectations of a large oversupply of high-priced ethanol that has nowhere to go.

The phenomenon is a product of environmental requirements and subsidies that are currently leading refiners to buy ethanol at record prices, according to analysis from the U.S. Energy Information Administration.

Refiners and other parties that produce fuels are required by the U.S. Environmental Protection Agency to buy supplies of ethanol to blend with their gasoline. For each gallon of ethanol they blend into their fuel, refiners get a credit, also known as a Renewable Identification Number, or RIN.

Refiners need to acquire a set amount of RINs annually to meet EPA requirements, and can also do so by buying RINs from other parties.

While the current supply of corn-based ethanol is down, because of a drought that affected production, output is expected to grow to levels that will leave the country with an oversupply of the fuel that will go unused unless something changes.

That’s because the EPA is requiring refiners to buy more ethanol at a time when fuel makers say they can’t blend any more of it into their gasoline.

The nation’s consumption of gasoline is falling and refiners say they can only replace 10 percent of their main gasoline blend with ethanol.

Ten percent of the nation’s expected 2013 gasoline consumption 13.3 billion gallons, a volume of ethanol that would fall within the mandate this year. But 10 percent of gasoline consumption will likely fall short of mandates in the future, EIA analyst Sean Hill said.

A dish of Bornetella oligospora, a saltwater algae, is displayed in the University of Texas biology building.

A dish of Bornetella oligospora, a saltwater algae, is displayed in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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Vials of Volvox tertius algae are stored in the University of Texas biology building, under the care of Professor Jerry Brand.

Vials of Volvox tertius algae are stored in the University of Texas biology building, under the care of Professor Jerry Brand.

Photo: Ashley Landis / Houston Chronicle

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Photo: Ashley Landis / Houston Chronicle

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Vials of algae are stored in the University of Texas biology building.

Vials of algae are stored in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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Containers of various freshwater (front) and saltwater (back) algae are displayed in the University of Texas biology building.

Containers of various freshwater (front) and saltwater (back) algae are displayed in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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Containers of various freshwater (front) and saltwater (back) algae are displayed in the University of Texas biology building.

Containers of various freshwater (front) and saltwater (back) algae are displayed in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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Vials of algae are stored in the University of Texas biology building.

Vials of algae are stored in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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University of Texas professor Jerry Brand opens a device that uses light to aid in the growth of algae in the school's biology building.

University of Texas professor Jerry Brand opens a device that uses light to aid in the growth of algae in the school's biology building.

Photo: Ashley Landis / Houston Chronicle

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University of Texas Culture Collection Manager Stephen Orlando Pena looks at samples of algae in the University of Texas biology building, under the care of Professor Jerry Brand.

University of Texas Culture Collection Manager Stephen Orlando Pena looks at samples of algae in the University of Texas biology building, under the care of Professor Jerry Brand.

Photo: Ashley Landis / Houston Chronicle

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Photo: Ashley Landis / Houston Chronicle

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A container of Bornetella sphaerica, a saltwater algae, is displayed in the University of Texas biology building, under the care of Professor Jerry Brand. Brand and his research team test strands of algae to be used in various end products, such as biofuels. less

A container of Bornetella sphaerica, a saltwater algae, is displayed in the University of Texas biology building, under the care of Professor Jerry Brand. Brand and his research team test strands of algae to ... more

Photo: Ashley Landis / Houston Chronicle

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A dish of Acetabularia acetabulum, a salwater algae, is displayed in the University of Texas biology building.

A dish of Acetabularia acetabulum, a salwater algae, is displayed in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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University of Texas Professor Jerry Brand with containers of algae in the school's biology building.

University of Texas Professor Jerry Brand with containers of algae in the school's biology building.

Photo: Ashley Landis / Houston Chronicle

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Containers of saltwater algae are displayed in the University of Texas biology building.

Containers of saltwater algae are displayed in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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University of Texas professor Dr. Jerry Brand stands with vials of algae ready to be shipped all over the world from the University of Texas biology building.

University of Texas professor Dr. Jerry Brand stands with vials of algae ready to be shipped all over the world from the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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Vials of algae are stored in the University of Texas biology building.

Vials of algae are stored in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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University of Texas Professor Jerry Brand with vials of algae ready to be shipped all over the world from the University of Texas biology building.

University of Texas Professor Jerry Brand with vials of algae ready to be shipped all over the world from the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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Vials of algae are stored in the University of Texas biology building under the care of Professor Jerry Brand.

Vials of algae are stored in the University of Texas biology building under the care of Professor Jerry Brand.

Photo: Ashley Landis / Houston Chronicle

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Vials of algae are stored in the University of Texas biology building.

Vials of algae are stored in the University of Texas biology building.

Photo: Ashley Landis / Houston Chronicle

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Algae samples are preserved in containers of liquid nitrogen in the University of Texas biology building.

Algae samples are preserved in containers of liquid nitrogen in the University of Texas biology building.